Meltem Ay spoke with Reinhard Pfingsten, CIO Bethmann Bank & Global Head Asset Allocation ABN AMRO Private Banking, about sustainability in the financial world, sustainable banks, regulations and the potential returns on sustainable investments.
What influence does the financial sector have on sustainability?
The range is huge. Money makes the world go round! The financial sector is an intermediary between money and companies and to that extent it plays a very important role.
How long have you been dealing with this topic?
For a long time, because sustainability is not a new topic and sustainable products have been around for decades. What is new, is that it used to be the niche product of a large supplier, but it is now the core product. In the past few years there has been gigantic growth in the institutional sector. Sustainable criteria are moving more and more into focus. What is also new is that private investors have discovered the topic for themselves and are also being steered in this direction by providers. The supply creates the demand. The growth among private investors is now also very strong, but of course it comes from a very low level. On the one hand, this is due to social change, which is certainly also related to generational change, and the political change that is causing companies to set sustainability goals. The Paris Agreement on Climate Change plays a major role here, but also a regulatory change.
What is a sustainable bank?
The EU has recognized that the financial industry is important to move sustainability forward. It takes companies and the financial sector to close ranks. The regulatory pressure ensures that our industry is moving. The first question is whether the institute also offers sustainable products, among other things. If there are only niche products or one product among many, then it is not a sustainable bank. It has to sell First Choice sustainable products and it has to deal adequately with sustainable issues such as corporate social responsibility and being a social employer. Topics such as ecological building management and the company car regulation are just as much a part of this as a corresponding product range.
Can maximum profits be achieved with sustainable funds / stocks?
I am not saying that sustainability can generate additional returns, because there is no reason to do so. Results vary from year to year. It is the same with sustainable products as with all others. But in any case, so much money is now flowing into sustainability that companies take the topic very seriously and better performance can be derived from it. On the other hand, there are studies that suggest that unsustainable investments can generate additional returns. From my point of view, one should not assume a systematic excess or reduced return on sustainable investments. Over the year, however, things can look very different, but for me it is the wrong question because this is about non-financial returns. If you want to be part of the change and help companies reduce CO2 emissions, then invest in sustainable products!
How much do you have to convince the customer to invest here?
In fact, we offer sustainable products as 'First Choice'. It is important to explain the advantages, but also the challenges, of sustainable investing to the customer. But the discussions have changed. In the past, we had to have a lot more fundamental discussions at this point.
When is an investment really sustainable?
The necessary orientation is at least provided by the classification of a product in accordance with Article 8 of the Sustainable Finance Disclosure Regulation (SFDR) of the European Commission. It is important to have a policy that highlights the sustainability risks. That means: which exclusions do I see? What am I not responsible for if a company is active in an area that does not meet the requirements? At Bethmann Bank we also have an advisory board that can anchor sustainability in line with current discussions - they can make policy decisions and impose restrictions.
Do you personally invest your money in sustainable funds?
Partly. Since I only invest in funds, I can answer the question in the affirmative for active funds; for ETFs, these do not yet meet all the requirements of Article 8 of the new regulation.
What investment goals can be pursued with an ESG portfolio?
We offer sustainability reporting for mutual fund customers and asset management customers. There are three blocks of sustainability in which the effects of sustainable products are discussed. We manage best-in-class products and show the best and worst values.
Sustainable products have to be made much more transparent and the purpose of these systems has to be brought closer to people.
Meltem Ay, Principal Consultant